GBP/JPY hangs on to strong gains after BoJ’s dovish message, struggling to break above 21-DMA

• GBP/JPY is trading around 163.00, just below its 21 DMA and more than 100 pips below previous session’s highs.
• Pound bulls remain hard to find as pessimism about the UK economy and BoE tightening outlook mounts.
• But the pair is still trading with gains of more than 1.0% on the day hit by the yen after the BOJ’s dovish message.

Although the pair is still trading over 1.0% higher on the day as the yen continues to suffer in the wake of the BoJ’s latest anticipated monetary policy announcement during the Asian session on Thursday, the cross GBP/JPY it has reversed more than 100 pips lower session highs above 164.00 and is now trading back below its 21-day moving average at 163.25 near the 163.00 level.

The British pound has seen substantial weakness in recent trading, despite the lack of a definitive trigger for a fundamental catalyst. The market is apparently still keen to sell sterling in the wake of a series of worrying data releases, including last week’s gloomy March retail sales report and this week’s shocking UK government lending figures. .

Hand in hand with concerns about UK growth, as the country suffers its worst cost of living cut in decades, there is a growing sense that beyond a few more 25bp rate hikes at the next few meetings, there is likely not much more to come via BoE monetary tightening. As a result, we probably shouldn’t be too surprised to see GBP/JPY’s bullish momentum fade.

Failure to retake the 21 DMA could be a bearish sign going forward, with some bears perhaps betting on an eventual pullback to this week’s lows below 160.00 and even a test of the 50 DMA just below 158.98. Of course, a lot will depend on whether the yen continues to fall. If the recent leg down is the start of another bigger bearish push, then GBP/JPY could find itself gradually moving towards last week’s highs above 168.00.

Technical levels